Refinance Calculator
Calculate whether refinancing your mortgage makes financial sense. Compare your current loan to a new loan, see your monthly savings, break-even point, and total interest savings over the life of the loan.
How to Use This Refinance Calculator
1. Enter your current loan balance, interest rate, monthly payment, and years remaining.
2. Enter the new loan's interest rate and term you are considering.
3. Add estimated closing costs (typically 2-5% of the loan amount).
4. Optionally enter a cash-out amount if doing a cash-out refinance.
5. Click "Calculate Refinance Savings" to see if refinancing makes financial sense for your situation.
What is Mortgage Refinancing?
Refinancing replaces your existing mortgage with a new loan, typically to obtain a lower interest rate, change the loan term, or access home equity. When you refinance, you pay off your current mortgage and start fresh with new loan terms. The process is similar to getting your original mortgage, including an application, appraisal, and closing process.
Refinancing makes sense when the savings outweigh the costs. Closing costs for a refinance typically range from 2% to 5% of the loan amount, including appraisal fees, title insurance, origination fees, and other charges. You need to stay in your home long enough after refinancing to recoup these costs through your monthly savings.
Common Reasons to Refinance
- Lower Interest Rate: Reduce your monthly payment and total interest paid over the life of the loan. Even a 0.5% rate reduction can save thousands of dollars on a large mortgage.
- Shorter Term: Switch from a 30-year to a 15-year mortgage to pay off your home faster and save on interest. Your monthly payment will be higher, but you will own your home sooner and pay significantly less total interest.
- Longer Term: Extend your loan term to lower monthly payments if you need more breathing room in your budget. This increases total interest paid but provides immediate cash flow relief.
- Cash-Out Refinance: Access your home equity by borrowing more than you owe and receiving the difference as cash. Common uses include home renovations, debt consolidation, or major expenses.
- Remove PMI: If your home has appreciated or you have paid down your balance to reach 20% equity, refinancing can eliminate private mortgage insurance payments.
- Switch Loan Type: Convert from an adjustable-rate mortgage (ARM) to a fixed-rate loan for payment stability, or vice versa if you plan to sell soon and want a lower initial rate.
When Refinancing Makes Sense
The general rule is that refinancing makes sense when you can reduce your rate by at least 0.5% to 1% and plan to stay in your home long enough to recoup the closing costs. Calculate your break-even point by dividing the total closing costs by your monthly savings. If you plan to stay in your home longer than the break-even period, refinancing is typically worthwhile.
Consider the full picture beyond just the monthly payment. Restarting a 30-year term when you have 20 years left means paying interest for an additional 10 years. Compare the total interest paid on your current loan versus the new loan to see the true cost difference. Sometimes keeping your current mortgage or making extra payments is better than refinancing.
The Refinance Process
Refinancing involves several steps similar to your original mortgage. First, shop around and get quotes from multiple lenders to compare rates and fees. Once you choose a lender, you will submit an application with income documentation, bank statements, and tax returns. The lender will order an appraisal to determine your home's current value. After underwriting approval, you will attend a closing where you sign the new loan documents and pay closing costs.
The entire refinance process typically takes 30 to 45 days from application to closing. You can often roll the closing costs into the new loan amount, though this means borrowing more and paying interest on those costs. Some lenders offer "no-closing-cost" refinances, but they typically charge a higher interest rate to compensate.
Break-Even Formula
The break-even point tells you how long it takes to recoup closing costs: Break-Even = Closing Costs / Monthly Savings
For example, if your closing costs are $6,000 and you save $200 per month, your break-even point is 30 months. If you plan to stay in your home longer than 30 months, refinancing would save you money. This calculator automatically computes your break-even point based on your inputs.